Does democratization lower consumer prices? Regime type,prices,and the consumer–producer tradeoff

Abstract

The booming literature on the consequences of democratization for material welfare has produced no findings on the relationship between regime type and relative consumer prices. The literature largely shows that democracies favor masses over elites, generating the expectation that democratization should lower consumer prices. Yet it also finds that democratization boosts economic growth, an outcome that is partially contingent on making consumer goods expensive relative to capital goods. We argue that democratization lowers relative consumer prices since politicians under democracy can more effectively chase votes by satisfying consumers’ demands for the immediate payoff of lower prices. Our statistical analysis of 160-plus countries over 60 years shows that democratization raises consumer advantage, which is the consumer price level relative to the price level of capital goods. We also provide evidence of the policy levers that democratizing countries have used to achieve this effect.